Selasa, 10 November 2015
Public Goods - Simply Explained
This is simple explanation of public goods which is essentially important to understand economic policies and phenomenon.
Public Goods can be defined as Goods that simultaneously provide benefits to more one individual at the same time (joint consumption) . This type of goods has distinct characteristics as follows.
(1) Non rivalry. It means that there's no competition (rivalry) to get a similar quality of certain services. In other words, once the good is provided then additional cost to consume is zero.
(2) Non excludable. It means that it is almost impossible or very costly to exclude particular consumers (free rider problems).
Therefore, we can plot the two characteristics as x-axis and y-axis as follows.It is shown that goods cannot define clearly whether it is public or private. In the end, we can fine other types of goods i.e. club goods and common property.
or it can be explained by using following diagram.
Few examples of public goods are services of defense, public broadcasts (radio and TV services), flood control, law enforcement, etc.
To define public or private goods, we can use simple method as follows.
Sources:
(1) Hyeon Park. International School of Urban Studies, Lecture materials
(2) Non excludable. It means that it is almost impossible or very costly to exclude particular consumers (free rider problems).
Therefore, we can plot the two characteristics as x-axis and y-axis as follows.It is shown that goods cannot define clearly whether it is public or private. In the end, we can fine other types of goods i.e. club goods and common property.
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| Public vs Private Goods |
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| Public vs Private Goods |
Few examples of public goods are services of defense, public broadcasts (radio and TV services), flood control, law enforcement, etc.
To define public or private goods, we can use simple method as follows.
 |
| Public vs Private |
Sources:
(1) Hyeon Park. International School of Urban Studies, Lecture materials
(2) Our Lovely Uncle Google
